(Answered)-What is the maximum price you should offer for

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You have just purchased 10 newly issued $100 five year ABC Company Ltd. debentures at par.These debentures pay $6 (per debenture) in interest semi-annually. You are also negotiating thepurchase of 10 $100 debentures issued by the DEF Company Ltd. 4 years ago, that return $3 perdebenture in semi-annual interest payments and have six years remaining to maturity.Required(i) Calculate the effective annual interest rate being offered on the ABC Company Ltd.debentures.(ii) What is the maximum price you should offer for the DEF Company Ltd. debenturesassuming the DEF company is in the same risk class as the ABC company?

 

Solution ID:10036886 | Question answered on 16-Oct-2016

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